OPINION> Commentary
Take preventive action
(China Daily)
Updated: 2008-09-16 07:36

A year after the US financial crisis erupted in August 2007, the world economy is still nowhere near the end of slowdown, especially as the unfolding Wall Street shake-up fuels new investor fears.

With Lehman Brothers, a key US investment bank, saying on Sunday that it would file for bankruptcy, the latest big casualty of the US financial turmoil will surely deal another huge blow to weakening confidence in the world's growth perspective.

Though many emerging economies have so far been affected to a much smaller extent by the US financial crisis, they should now brace for greater uncertainties in the world economy.

For Chinese policymakers who are striving to balance economic growth and curbing inflation, it is high time to take preemptive measures against a worse-than-expected global slowdown.

As the US financial crisis deepens all the way along, unfortunately, domestic discussion has misguidedly focused on if the Chinese authorities should take action to support the stock market in the wake of the US government bailout of battered financial institutions.

It is certainly a rare chance to observe how regulators of an advanced market like the US are responding to a huge financial havoc to avoid economic recession.

However, before the US government can work out the complexities and consequences of its intervention in the financial system, it makes no sense for Chinese regulators to follow suit without keeping an eye on the broader picture.

For the moment, the burning task for Chinese policymakers is to grasp the full impact a worsening US financial crisis may exert on the world economy and thus on China's economic growth.

A financial tsunami on the other side of the Pacific may hit the country even faster than the shockwaves in water will do. Chinese policymakers must move quickly to come up with preventive measures that can cushion the national economy against a much dimmer global growth outlook.

There are already talks that deflation is starting to play upon investors' minds again as a result of falling house prices, failing financial institutions and weaker growth in major developed economies.

Because of domestic credit squeeze and weakening external demand, the expansion of the Chinese economy has slowed for four quarters since the second half of last year. Latest statistics indicate that the country's industrial output growth for August rose at the slowest pace in six years.

Yet, China does not have to follow the global downward trend if policymakers can make good use of its growing fiscal strength to accelerate structural reforms.

As the US financial crisis spreads wider, the US economy and the world economy will suffer, and Chinese exporters too will have a tough time no matter how hard they work. That means China has to rely more and more on domestic demand, particularly domestic consumption, for growth in future.

If that is the case, the best preparation is to put into place policies that can significantly alleviate the public's worries about healthcare, education and other social welfare costs.

(China Daily 09/16/2008 page8)